More good news out of America

With few exceptions, the US economy continues to exhibit surprising strength and resilience. For instance, in the labour market, jobless claims fell another 19K in the latest week to 366K, the lowest since mid-2008. Not only are less people losing their jobs, but also more people are finding work as well. Manufacturing seems to be expanding gradually, as reaffirmed by the jump in the Empire Manufacturing Index for December reported yesterday. FedEx, regarded as a bellwether for the American economy, reported strong earnings yesterday due to strong growth in online shopping. And the Fed raised its growth forecast for next year at its meeting on Tuesday.

Given the increasingly problematic global backdrop, especially in Europe, it remains to be seen how long this recent run of good news continues. The trade linkage of the United States to the rest of the world is relatively small – exports represent just over 13% of the economy. Consumers have been spending over the second half of this year, although aggressive discounting has invariably been the lure to get them to open their collective wallets. Notwithstanding the improving signs on the job front, there is still a huge pool of long-term unemployed and discouraged workers. Also, the Fed still expects that the economy will not grow fast enough in the period ahead to satisfy its employment mandate and, as a result, it continues to maintain an extremely accommodative policy stance. Further QE from the Fed is still entirely plausible next year, despite these more favourable economic developments over recent weeks.